Having both a pension and Social Security benefits, as well as other income sources, should be a plus in retirement income planning for your clients.

Unfortunately, it often can present new challenges for advisors with increasing longevity rates. And it can complicate tax planning.

Larry Luxenberg, principal and chief investment of officer of Lexington Avenue Capital Management, New City, N.Y., sees a need first to educate clients on Social Security and pension issues. "Whenever I meet with a client," says Luxenberg, "they're always shocked at how big their Social Security benefits are and how important they are to their retirement."

On the other hand, many clients, he says, realize the importance of a pension but don't understand the various options with the pension. One of the key points to determine, for example, is joint survivorship -- does the spouse continue to get the pension if the pensioner dies?

PAYS TO WAIT

Richard Paul, CEO of Richard W. Paul and Associates, Novi, Mich., says if a client already has a steady monthly pension paycheck, it makes sense to let clients wait to file Social Security, letting benefits grow by about 8% annually from full retirement age, (currently 66) to age 70. Then they can fund any additional income needs from 401(k) assets or other account retirement accounts.

Much of the time, says Paul, "the file and suspend method comes out as the most likely to maximize benefits, which entails one spouse filing and suspending benefits, and the other spouse taking spousal benefits. This way they have some income coming in, but also allows us to delay both benefits until they receive their maximum benefit, at age 70."

Social Security expert Brian Doherty, author of Getting Paid to Wait, says often it makes sense to take the pension first to make it easier to maximize a client's Social Security benefits, especially if the client is a married couple.

"It makes sense because Social Security has an annual COLA (cost of living adjustment) that will automatically increase the client's Social Security income with the prevailing rate of inflation," says Doherty. "Ideally, you want to apply that COLA percentage increase to the biggest benefit possible so that it results in the biggest benefit possible so that it results in the biggest dollar increases in their Social Security benefits for the rest of their lives. Most pensions do not have an annual COLA adjustment."

MIND THE TAXES

With both a pension and Social Security, Palisades Hudson Financial Group in Scarsdale, N.Y., recommends among its first planning steps that retiree clients avoid having their Social Security benefits taxed as much as possible.

In other words, if clients are not relying on investment income generated in taxable accounts to fund retirement, selling securities liable to generate taxes and reinvesting proceeds in "growth investments that pay little to no dividends, and in tax-exempt municipal bonds will perpetually reduce taxable income," says Palisades Hudson advisor Laurie Samay.

Bruce W. Fraser, a New York financial writer, is a contributor to Financial Planning and On Wall Street.

This story is part of a 30-day series on Social Security and retirement income strategies.